SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1994
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-15528
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BALCOR PENSION INVESTORS-VII
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(Exact name of registrant as specified in its charter)
Illinois 36-3390487
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Balcor Plaza
4849 Golf Road, Skokie, Illinois 60077-9894
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 677-2900
--------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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BALCOR PENSION INVESTORS-VII
(An Illinois Limited Partnership)
BALANCE SHEETS
September 30, 1994 and December 31, 1993
(Unaudited)
ASSETS
1994 1993
-------------- --------------
Cash and cash equivalents $ 13,035,470 $ 5,243,553
Escrow deposits 156,088 60,590
Escrow deposits - restricted 106,154
Accounts and accrued interest receivable 309,692 834,486
Deferred expenses, net of accumulated
amortization of $118,000 in 1994 and
$90,224 in 1993 60,594 88,370
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13,561,844 6,333,153
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Investment in loans receivable:
Loans receivable - first mortgages 22,110,926 30,160,926
Loan application and processing fees, net
of accumulated amortization of $2,111,165
in 1994 and $1,801,424 in 1993 197,552 507,293
Less:
Allowance for potential loan losses 4,059,426 5,854,326
-------------- --------------
Net investment in loans receivable 18,249,052 24,813,893
Real estate held for sale (net of allowance
of $3,400,000 in 1994 and 1993) 58,553,056 59,438,335
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76,802,108 84,252,228
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$ 90,363,952 $ 90,585,381
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 148,076 $ 313,035
Due to affiliates 162,576 74,069
Accrued liabilities, principally real
estate taxes 434,345 85,262
Escrow liabilities 106,154
Security deposits 336,811 210,629
Mortgage note payable 4,954,556 4,991,956
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Total liabilities 6,036,364 5,781,105
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Affiliates' participation in joint ventures 13,640,538 13,826,566
Partners' capital (461,470 Limited
Partnership Interests issued and
outstanding) 70,687,050 70,977,710
-------------- --------------
$ 90,363,952 $ 90,585,381
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-VII
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the nine months ended September 30, 1994 and 1993
(Unaudited)
1994 1993
-------------- --------------
Income:
Interest on loans receivable, net of
amortization of loan application and
processing fees of $309,741 in 1994
and $121,805 in 1993 $ 2,357,666 $ 2,256,399
Income from operations of real estate
held for sale 3,446,280 2,793,242
Interest on short-term investments 206,505 126,998
Participation income 408,083
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Total income 6,010,451 5,584,722
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Expenses:
Provision for potential losses on loans,
real estate and accrued interest
receivable 4,150,000
Mortgage servicing fees 57,555 87,497
Administrative 686,600 441,041
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Total expenses 744,155 4,678,538
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Income before affiliates' participation in
(income) loss of joint ventures 5,266,296 906,184
Affiliates' participation in (income) loss
of joint ventures (942,257) 701,829
-------------- --------------
Net income $ 4,324,039 $ 1,608,013
============== ==============
Net income allocated to General Partner $ 432,404 $ 160,801
============== ==============
Net income allocated to Limited Partners $ 3,891,635 $ 1,447,212
============== ==============
Net income per Limited Partnership Interest
(461,470 issued and outstanding) $ 8.43 $ 3.14
============== ==============
Distributions to General Partner $ 461,469 $ 461,469
============== ==============
Distributions to Limited Partners $ 4,153,230 $ 4,153,230
============== ==============
Distributions per Limited Partnership
Interest $ 9.00 $ 9.00
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-VII
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended September 30, 1994 and 1993
(Unaudited)
1994 1993
-------------- --------------
Income:
Interest on loans receivable, net of
amortization of loan application and
processing fees of $151,217 in 1994
and $60,001 in 1993 $ 575,135 $ 681,095
Income from operations of real estate
held for sale 1,258,122 858,470
Interest on short-term investments 112,626 46,753
Participation income 408,083
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Total income 1,945,883 1,994,401
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Expenses:
Provision for potential losses on loans,
real estate and accrued interest
receivable 3,400,000
Mortgage servicing fees 12,335 29,166
Administrative 186,585 130,011
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Total expenses 198,920 3,559,177
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Income (loss) before affiliates' participation
in (income) loss of joint ventures 1,746,963 (1,564,776)
Affiliates' participation in (income) loss of
joint ventures (308,033) 1,245,149
-------------- --------------
Net income (loss) $ 1,438,930 $ (319,627)
============== ==============
Net income (loss) allocated to General
Partner $ 143,893 $ (31,963)
============== ==============
Net income (loss) allocated to Limited
Partners $ 1,295,037 $ (287,664)
============== ==============
Net income (loss) per Limited Partnership
Interest (461,470 issued and outstanding) $ 2.80 $ (0.62)
============== ==============
Distribution to General Partner $ 153,823 $ 153,823
============== ==============
Distribution to Limited Partners $ 1,384,410 $ 1,384,410
============== ==============
Distribution per Limited Partnership
Interest $ 3.00 $ 3.00
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-VII
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1994 and 1993
(Unaudited)
1994 1993
-------------- --------------
Operating activities:
Net income $ 4,324,039 $ 1,608,013
Adjustments to reconcile net income to net
cash provided by operating activities:
Affiliates' participation in income
(loss) of joint ventures 942,257 (701,829)
Amortization of deferred expenses 27,776 28,941
Amortization of loan application and
processing fees 309,741 121,805
Provision for potential losses on
loans, real estate and accrued
interest receivable 4,150,000
Net change in:
Escrow deposits (95,498)
Accounts and accrued interest
receivable 379,894 (36,123)
Accounts payable (164,959) (8,733)
Due to affiliates 88,507 13,741
Accrued liabilities 349,083 250,587
Security deposits 126,182 (3,249)
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Net cash provided by operating activities 6,287,022 5,423,153
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Investing activities:
Improvements to properties (114,721) (196,944)
Deposit on purchase of property (257,424)
Collection of principal payments on
loans receivable 6,400,000 3,154,074
Proceeds from litigation settlement 1,000,000
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Net cash provided by investing activities 7,285,279 2,699,706
-------------- --------------
Financing activities:
Distributions to Limited Partners (4,153,230) (4,153,230)
Distributions to General Partner (461,469) (461,469)
Distributions to joint venture partners -
affiliates (1,128,285) (661,145)
Principal payments on mortgage note
payable (37,400)
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Cash used in financing activities (5,780,384) (5,275,844)
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Net change in cash and cash equivalents 7,791,917 2,847,015
Cash and cash equivalents at beginning
of period 5,243,553 5,232,850
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Cash and cash equivalents at end of period $ 13,035,470 $ 8,079,865
============== ==============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-VII
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policy:
A reclassification has been made to the previously reported 1993 statements in
order to provide comparability with the 1994 statements. This reclassification
has not changed the 1993 results. In the opinion of management, all adjustments
necessary for a fair presentation have been made to the accompanying statements
for the nine months and quarter ended September 30, 1994, and all such
adjustments are of a normal and recurring nature.
2. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates for the
nine months and quarter ended September 30, 1994 are:
Paid
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Nine Months Quarter Payable
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Mortgage servicing fees $ 60,625 $ 12,832 $ 6,027
Property management fees 372,412 138,890 48,546
Reimbursement of expenses to
the General Partner, at cost:
Accounting 49,567 35,790 22,653
Data processing 10,812 10,812 42,847
Investor communications 10,037 7,229 3,919
Legal 4,903 3,531 4,365
Portfolio management 47,345 34,101 28,917
Other 15,910 11,460 5,302
3. Real Estate Held For Sale:
In March 1994, the Partnership received title to Hickory Creek Apartments in
Columbus, Ohio at a foreclosure sale. The outstanding loan balance of
$10,338,837 was capitalized to the basis of the property. The Partnership
classified this investment as real estate held for sale for financial statement
purposes at December 31, 1993.
4. Loan Prepayment:
In July 1994, the borrower of the loan collateralized by the Eastgate Village
Mobile Home Park in Brighton, Colorado prepaid the loan in the discounted
amount of $6,400,000. Previously established allowances for potential loan
losses of $1,794,900 were written off in connection with the prepayment of the
loan.
5. Settlement of Litigation:
In September 1994, the Partnership received $1,000,000 as a result of the
settlement of the Whispering Hills litigation, which was used to reduce the
basis of the property. Of this amount, $250,000 was distributed to the
affiliated joint venture partner for its share of the settlement.
6. Subsequent Event:
In October 1994, the Partnership paid a distribution of $1,384,410 ($3.00 per
Interest) to the holders of Limited Partnership Interests, representing the
quarterly distribution for the third quarter of 1994.
BALCOR PENSION INVESTORS-VII
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Pension Investors - VII (the "Partnership") is a limited partnership
formed in 1985 to invest in first mortgage loans. The Partnership raised
$115,367,500 from sales of Limited Partnership Interests and utilized these
proceeds to fund eight loans. In 1993, one loan was prepaid. Also in 1993, a
joint venture consisting of the Partnership and an affiliate purchased a
property adjacent to an existing property previously acquired through
foreclosure. In March 1994, the Partnership acquired the Hickory Creek
Apartments through foreclosure. In July 1994, the Eastgate Village Mobile Home
Park loan was prepaid at a discount. Currently, three loans remain outstanding
in the Partnership's portfolio and the Partnership owns four properties;
however, the Whispering Hills loan is accounted for as real estate held for
sale.
Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1993 for a more complete understanding of
the Partnership's financial position.
Operations
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Summary of Operations
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The Partnership recognized a provision for potential losses during the third
quarter of 1993 due to a decline in the fair value of Sand Pebble Village
Apartments - Phase I, in which the Partnership holds a majority joint venture
interest. No provision for potential losses on loans and real estate held for
sale was recognized in 1994. As a result, the Partnership recognized higher net
income during the nine months ended September 30, 1994 as compared to the same
period in 1993 and recognized net income during the quarter ended September 30,
1994 as compared to a net loss during the same period in 1993. Further
discussion of the Partnership's operations is summarized below.
1994 Compared to 1993
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The Partnership received approximately $861,000 of excess cash flow earned
during the bankruptcy proceedings for the Hickory Creek Apartments loan during
the second quarter of 1994 which caused an increase in interest income on loans
receivable during the nine months ended September 30, 1994 as compared to the
same period in 1993. The August 1993 prepayment of the ROC Properties loan
partially offset the increase in interest income on loans receivable for the
nine months ended September 30, 1994 and caused a decrease in interest income
on loans receivable for the quarter ended September 30, 1994 as compared to the
same periods in 1993.
As of September 30, 1994, the loan collateralized by the Butler Plaza shopping
center was on non-accrual status. An affiliate of the General Partner took over
management of the property in August 1994 pursuant to an agreement with the
borrower whereby the Partnership will postpone taking title to the property
until January 1995. The funds advanced by the Partnership for the loan total
$13,000,000 which comprises approximately 15% of the Partnership's portfolio
based on original funds advanced. For non-accrual loans, income is recorded
only as cash payments are received from the borrowers. During the first nine
months of 1994, the Partnership received approximately $799,000 as compared to
approximately $765,000 during the same period in 1993. The Partnership was
entitled to receive approximately $977,000 during the first nine months of 1994
and 1993 under the terms of the original loan agreement.
Income from operations of real estate held for sale represents the net property
operations of the U.S. West Direct Center office building, and the Whispering
Hills, Sand Pebble Village - Phase I, Sand Pebble Village - Phase II, and
Hickory Creek apartment complexes. These five properties comprise approximately
60% of the Partnership's portfolio based on original funds advanced. The Sand
Pebble Village - Phase II apartment complex was purchased in October 1993 by a
joint venture consisting of the Partnership and an affiliate, and title to the
Hickory Creek apartment complex was received at a foreclosure sale in March
1994. Income generated from operations at the Sand Pebble Village - Phase II
and Hickory Creek apartment complexes was the primary reason for the increase
in income from operations of real estate held for sale during the nine months
and quarter ended September 30, 1994 as compared to the same periods in 1993.
The allowance for potential losses provides for potential losses on loans and
real estate held for sale and is based upon past loss experience for similar
loans and real estate and prevailing economic conditions in the market in which
the collateral properties are located, and the General Partner's analysis of
specific loans in the Partnership's portfolio. No provision was recognized
during the nine months ended September 30, 1994. A provision for potential
losses of $4,150,000 was recognized during the nine months ended September 30,
1993. While actual losses may vary from time to time because of changes in
circumstances (such as occupancy rates, rental rates, and other economic
factors), the General Partner believes that adequate recognition has been given
to loss exposure in the portfolio at September 30, 1994. During the third
quarter of 1994, allowances in the amount of $1,794,900 related to the Eastgate
Village Mobile Home Park loan were written off in connection with the
prepayment of the loan at a discount.
As a result of higher average cash balances due to the discounted prepayment of
the Eastgate Village Mobile Home Park loan in July 1994, and higher interest
rates, interest income on short-term investments increased during the nine
months and quarter ended September 30, 1994 when compared to the same periods
in 1993.
Participation income was recognized during 1993 in connection with the August
1993 ROC Properties loan prepayment.
The prepayments of the ROC Properties loan in August 1993 and the Eastgate
Village Mobile Home Park loan in July 1994, and the foreclosure on the Hickory
Creek Apartments loan in March 1994 reduced the number of loans outstanding in
the Partnership's portfolio, resulting in a decrease in mortgage servicing fees
during the nine months and quarter ended September 30, 1994 when compared to
the same periods in 1993.
The Partnership recognized affiliates' participation in income for the nine
months and quarter ended September 30, 1994 compared to affiliates'
participation in loss for the same periods in 1993. This was primarily due to
the provision for potential losses on real estate which was recognized during
the third quarter of 1993 due to a decline in the fair value of Sand Pebble
Village Apartments - Phase I, which is owned by a joint venture with an
affiliate.
Due primarily to legal fees paid in connection with the Whispering Hills
Apartments litigation, the Hickory Creek Apartments foreclosure, and the Butler
Plaza loan default, administrative expenses increased during the nine months
and quarter ended September 30, 1994 when compared to the same periods in 1993.
Liquidity and Capital Resources
- -------------------------------
The cash or near cash position of the Partnership increased as of September 30,
1994 when compared to December 31, 1993. The Partnership's cash flow provided
by operating activities was generated by operations of the Partnership's real
estate held for sale, collections relating to loans receivable, and interest
earned on short-term investments. This cash flow was partially offset by the
payment of administrative expenses. The cash flow from investing activities
consisted primarily of the collection of the principal prepayment on the
Eastgate Village loan and the proceeds from the Whispering Hills litigation
settlement. The cash flow from operating and investing activities was partially
used to fund financing activities which consisted primarily of distributions to
the Limited Partners and General Partner as well as distributions to the
affiliated joint venture partners, which represented their share of property
operations. The Partnership's cash or near cash position fluctuates during each
quarter, initially decreasing with the payment of Partnership distributions for
the previous quarter and then gradually increasing each month in the quarter as
mortgage payments and cash from property operations are received.
The U.S. West Direct Center office building and the Whispering Hills and Sand
Pebble Village - Phase I apartment complexes generated positive cash flow
during the nine months ended September 30, 1994 and 1993. Sand Pebble Village
Apartments - Phase II, which was purchased in October 1993, and Hickory Creek
Apartments, which was acquired in March 1994, both generated positive cash flow
during the nine months ended September 30, 1994. Sand Pebble Village Apartments
- - Phase II is the only property that has underlying debt. The General Partner's
goals are to maintain high occupancy levels, while increasing rents where
possible, and to monitor and control operating expenses and capital improvement
requirements at the properties.
In July 1994, the Partnership accepted a prepayment of the loan collateralized
by the Eastgate Village Mobile Home Park in Brighton, Colorado at a discount
due to the diminished value of the property. The Partnership received
$6,400,000 in full settlement of the $8,050,000 mortgage loan.
In September 1994, the Partnership received $1,000,000 as a result of the
settlement of litigation on the Whispering Hills Apartments loan. See Part II
Item 1. Legal Proceedings for additional information.
In September 1993, the loan collateralized by Butler Plaza was placed in
default. The borrower subsequently filed for bankruptcy protection under the
U.S. Bankruptcy Code which stayed the foreclosure. A hearing was held in May
1994 and the bankruptcy case was dismissed effective June 6, 1994. The
Partnership is proceeding with the foreclosure and expects to obtain title to
the property in early 1995. In August 1994, an affiliate of the Partnership
assumed management of the property.
In November 1991, the loan collateralized by Hickory Creek Apartments was
placed in default and the Partnership initiated foreclosure proceedings. In
July 1993, the Partnership's motion for summary judgment in the foreclosure
action was granted. In March 1994, the Partnership acquired title to the
property at a foreclosure sale. During the second quarter of 1994, the
Partnership received approximately $861,000 representing excess cash flow from
the property during the bankruptcy proceedings.
In October 1994, the Partnership paid $1,384,410 ($3.00 per Interest) to the
holders of Limited Partnership Interests and $115,367 to the General Partner
representing the quarterly distributions of available Cash Flow for the third
quarter of 1994. The level of these distributions are consistent with the
amounts distributed for the first and second quarters of 1994. The Partnership
expects to continue making cash distributions from the cash flow generated by
the receipt of mortgage payments and property operations less mortgage
servicing fees and administrative expenses. The General Partner believes it has
retained, on behalf of the Partnership, an appropriate amount of working
capital to meet cash or liquidity requirements which may occur.
In October 1994, the Partnership paid $38,456 to the General Partner as its
contribution to the Early Investment Incentive Fund. During the nine months
ended September 30, 1994, the General Partner used amounts placed in the Early
Investment Incentive Fund to purchase 1,055 Interests from Limited Partners for
a total cost of $177,669.
On November 4, 1994, The Balcor Company completed the sale of the assets of
Allegiance Realty Group, Inc. to an unaffiliated company, Insignia Allegiance
Management, Inc. ("Insignia"), which is based in Greenville, South Carolina. As
a result of this transaction, Insignia has assumed the management of the
Partnership's properties. This transaction is not expected to result in any
material change to the property management fees paid by the Partnership.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices
depending on general or local economic conditions. In the long-term, inflation
will increase operating costs and replacement costs and may lead to increased
rental revenues and real estate values. The Partnership's use of participations
for loans receivable is intended to provide a hedge against the impact of
inflation; sharing in cash flow or rental income and/or the capital
appreciation of the properties collateralizing the loans should result in
increases in the total yields on the loans as inflation rates rise.
BALCOR PENSION INVESTORS-VII
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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(a) Whispering Hills Apartments
---------------------------
In July 1994, Balcor Mortgage Advisors, Inc., nominee for the Partnership and
an affiliate (together, the "Participants"), the borrower of the loan
collateralized by Whispering Hills Apartments ("Borrower") and the insurance
carriers for the seller of the property ("Seller"), executed a settlement
agreement in which the insurance carriers agreed to pay the Participants
$1,000,000 in full satisfaction of the litigation arising from construction
defects at the property (District Court of Johnson County, Kansas, Arnold L.
Porath et al. v. Robertson Homes and Catwil Corporation, and Sixty Ninth Street
Associates, Case No.: 88-C-2457). On September 30, 1994, the Participants
received the $1,000,000, which has been applied against the principal balance
due under the loan. Of this amount, $250,000 has been transferred to the
affiliated joint venture partner as its share of the settlement. As part of the
settlement, the Participants and the Borrower also agreed to drop the claims in
the bankruptcy proceedings filed by the Seller and its general partner in the
bankruptcy cases filed in the U.S. Bankruptcy Court for the Eastern District of
California, In re Catwil Corporation (Case No.: 92-91348) and In re Sixty Ninth
Street Associates (Case No.: 92-91349).
(b) Williams proposed class action
------------------------------
With respect to the proposed class action lawsuit filed in the U.S. District
Court, Northern District of Illinois (Paul Williams and Beverly Kennedy, et al.
vs. Balcor Pension Investors, et al., Case No. 90-C-0726), against the
Partnership and certain affiliated entities, in May 1993, the Court issued an
opinion and order denying the plaintiffs' motion for class certification based
in part of the inadequacy of the individual plaintiffs representing the
proposed class. Further, the Court granted the defendants' motion for certain
sanctions against plaintiffs' counsel and ordered the plaintiffs' counsel to
pay the defendants attorneys' fees incurred with the class certification
motion. The defendants filed a petition for reimbursement of their fees and
costs from plaintiffs' counsel which remains pending. A motion previously filed
by the plaintiffs seeking to dismiss the defendants' counterclaim for fraud was
denied on August 18, 1994.
In July 1993, the Court gave plaintiffs leave to retain new counsel and to
propose new individual class representatives. The plaintiffs retained new
counsel and proposed three new individual class representatives. The defendants
conducted discovery regarding the proposed new class representatives and, in
February 1994, filed a response to the plaintiffs' latest motion for class
certification. On July 19, 1994, the Court indicated an intent to certify a
class relating to the plaintiffs' securities fraud claims, but gave leave for
the defendants to file a further motion opposing class certification. On August
26, 1994, the defendants filed a motion which has been briefed. The motion
remains pending.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits:
(4) Form of Subscription Agreement previously filed as Exhibit 4.1 to Amendment
No. 1 to the Registrant's Registration Statement on Form S-11 dated March 6,
1986 (Registration No. 33-01630) and Form of Confirmation regarding Interests
in the Registrant set forth as Exhibit 4.2 to the Registrant's Report on Form
10-Q for the quarter ended June 30, 1992 (Commission File No. 0-15528) are
incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for the nine month period ending
September 30, 1994 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended September 30, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALCOR PENSION INVESTORS-VII
By: /s/Thomas E. Meador
-----------------------------
Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Mortgage Advisors-VII, the General Partner
By: /s/Allan Wood
-----------------------------
Allan Wood
Executive Vice President, and Chief
Accounting and Financial Officer (Principal
Accounting and Financial Officer) of Balcor
Mortgage Advisors-VII, the General Partner
Date: November 17, 1994
---------------------------
